The Financial Services (Implementation of Legislation) Bill 2017-19 enables the Treasury to make corresponding or similar provisions in UK law to upcoming EU financial services legislation in the event that the UK leaves the European Union without a deal.
Currently, most financial services regulation is made at EU level. It is either directly applicable or transposed into domestic law by secondary legislation. In preparation for leaving the EU, the European Union (Withdrawal) Act 2018 (EUWA) incorporates all EU law on the day of exit into UK law so that existing regulation continues to have effect after Brexit. If the UK ratifies the Withdrawal Agreement, it will enter an implementation period until 31 December 2020, during which EU law will continue to apply. During this period the UK will continue to implement financial services regulation through secondary legislation. However, if the UK leaves the EU with no deal, there will be no mechanism through which financial services regulation can be updated without the need for primary legislation.
There are several items of EU financial services legislation which have either been adopted by the EU but will not be implemented by the time the UK leaves, or that are currently in negotiation and may be adopted shortly after. These items are referred to as “in-flight files”. The Bill would give the Treasury the power to create corresponding or similar UK regulations, subject to any adjustments appropriate to the UK’s new position outside the EU.
The power is subject to the same restrictions on scope as the correcting power in the EUWA and may only be used for up to two years after exit day. Statutory instruments made under the power in this Bill will be subject to the affirmative resolution procedure, which requires a vote in both Houses. The Treasury will be required to produce six-monthly reports on the use of the power.
The Bill completed its stages in the House of Lords on 6 February 2019, and had First Reading in the House of Commons on the same day. The Lords raised various issues at Committee Stage, which the Government took onboard at Report Stage, moving amendments with the following effects:
- To restrict the adjustments that the Treasury can make. The Treasury will only be able to make policy changes to those files that were not settled while the UK was an EU member, and as long as the changes are not “major”. For those files that the UK fully negotiated as a Member State, the adjustments will be limited to fixing deficiencies arising from the UK’s exit (as happens under the EUWA).
- To require more detailed and frequent reporting from the Treasury on its proposals and use of powers.
- To extend these reporting requirements to the financial regulators (Bank of England, PRA, FCA), where the powers are sub-delegated to them.
- To add proposed regulations to facilitate sustainable investment to the list of in-flight EU files that the Bill refers to.
The amendments were all accepted without a division.
The Bill received its Second Reading in the Commons on Monday 11 February 2019 and Committee Stage was on 26 February 2019. A number of opposition amendments were pressed to a vote at Committee Stage, but none passed.
Report and Third Reading are set for 4 March 2019. Andrew Mitchell and Margaret Hodge tabled a cross-party amendment (NC3) to reaffirm the end-of-2020 deadline for Overseas Territories to launch publicly accessible registers of the beneficial ownership of companies. The proposed new clause also extends that requirement to Crown Dependencies. There is more information about registers of beneficial ownership in our briefing, Registers of beneficial ownership.
All bill documents can be found on the bill page, here.